Positive on Kimlun’s East Malaysian road contract
KUCHING: Analysts are pleasantly surprised at Kimlun Corporation Bhd (Kimlun) as its wholly-owned subsidiary, Kimlun Sdn Bhd, has been awarded the main works for construction and maintenance of Sarawak-Sabah Link Road Construction Project (Lawas-Long Lopeng Junction) worth RM780 million by Samling Resources Sdn Bhd.
In a filing with Bursa Malaysia, the company said the project is expected to contribute positively to the earnings and net assets of Kimlun Group for the financial years during the contract period.
“None of the directors and/ or major shareholders of the company or persons connected with them have any interest, direct or indirect, in the contracts,” it said.
The construction work is expected to be completed in the second quarter of 2025.
The team with Hong Leong Investment Bank Bhd (HLIB Research) pegged this award as a positive surprise for Kimlun, bringing its total construction contracts secured in FY21 to RM800 million, comfortably beating the research firm’s assumption and company’s guidance of RM250 million and RM500 million respectively.
“With the newly secured contract, Kimlun’s outstanding construction orderbook doubles from RM800 million to RM1.6 billion, translating to a 2.5 times cover on construction revenue in financial year 2020 (FY20), similar to levels attained back in FY16,” it said in its review.
“Including its outstanding precast orderbook, total orders amount to RM1.9 billion or 2.4 times cover on FY20 revenue.”
Also pleasantly surprised was Kenanga Investment Bank Bhd’s eam (Kenanga Research) as its original target for Kimlun’s orderbook replenismhent was RM600 million for FY21.
“That said, we expect margins for this contract to be slim at circa six per cent, similar to what the group has been reporting in recent quarters, attributable to highly competitive tenders.
“Looking ahead, replenishment prospects for the group lies in the Johor Bahru-Singapore Rapid Transit System, Pan Borneo Sarawak Phase 2, Autonomous Rail Transit Kuching, Iskandar Bus Rapid Transit and Central Spine Road. Outstanding orderbook post contract win stands at RM2 billion0b – providing circa two times revenue cover.”
HLIB Research added that the impending vaccinated travel lane (VTL) with Singapore should aid recovery of private sector opportunities in Johor which bodes well for local players like Kimlun.
“Civil works for the RTS are also due to accelerate once utilities relocation is done by next year and should unlock precast opportunities in addition to ongoing orders from Singapore,” it enthused.
“Also, the potential rollout of MRT3 (timing uncertain) would be a bonus given Kimlun’s track record in supplying precast products to MRT1 and 2. Going into 2022, we view Kimlun’s job visibility and solid orderbook reassuring.”